Liquidity in Cryptocurrency Market and Commonalities across Anomalies

29 Pages Posted: 23 Apr 2020 Last revised: 7 May 2020

See all articles by Bingbing Dong

Bingbing Dong

Central University of Finance and Economics (CUFE)

Lei Jiang

Tsinghua University

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance

Yifeng Zhu

School of Finance, Central University of Finance and Economics

Date Written: May 7, 2020

Abstract

In this paper, we examine how liquidity affects cryptocurrency market efficiency and study commonalities in anomaly performance in cryptocurrency market. Based on the unique features of cryptocurrencies, we build a model with anonymous traders valuing cryptocurrencies as payments for goods and investment assets, and find that in the long-run equilibrium, decreases in funding liquidity translate into lower asset liquidity in the cryptocurrency market. Empirically, we observe that the widely recognized stock market anomalies also exist in the cryptocurrency market, though some have opposite long/short legs. In addition, we also find supportive evidence that a decrease in cryptocurrency liquidity enhances hedge portfolio returns based on anomalies while preventing the cryptocurrency market from achieving efficiency.

Keywords: Cryptocurrency, Asset Liquidity, Funding Liquidity, Anomalies

JEL Classification: G11, G14

Suggested Citation

Dong, Bingbing and Jiang, Lei and Liu, Jinyu and Zhu, Yifeng, Liquidity in Cryptocurrency Market and Commonalities across Anomalies (May 7, 2020). Available at SSRN: https://ssrn.com/abstract=3563952 or http://dx.doi.org/10.2139/ssrn.3563952

Bingbing Dong

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Lei Jiang

Tsinghua University ( email )

Beijing, 100084
China

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China
+8613720001753 (Phone)

HOME PAGE: http://mzttd.club/liujinyu.html

Yifeng Zhu (Contact Author)

School of Finance, Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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